1 Executive Summary to the 2018 Financial Report of U.S. Government 
 Executive Summary to the 2018 Financial Report of the U.S. Government 2

Executive Summary to the Fiscal Year 2018 

Financial Report of the United States Government

The Fiscal Year 2018 Financial Report of the United States Government (Financial Report) presents the U.S. 

government’s current financial position and condition, and discusses key financial topics and trends. The 

Financial Report is produced by the U.S. Department of the Treasury (Treasury) in coordination with the Office 

of Management and Budget (OMB) of the Executive Office of the President. The table on the preceding page 

presents several key indicators of the government’s financial position and condition, which are discussed in this 

Summary and, in greater detail, in the Financial Report. The Secretary of the Treasury, Director of OMB, and the 

Comptroller General of the United States at the Government Accountability Office (GAO) believe that the 

information discussed in this Financial Report is important to all Americans.

This Financial Report addresses the government’s financial activity and results as of and for the fiscal years 

ended September 30, 2018 and 2017. Note 26, Subsequent Events discusses events that occurred after the end of 

the fiscal year which may affect the government’s financial position and condition.

Where We Are Now 

Comparing the Budget and the Financial Report 

The Budget of the United States Government (Budget) and the Financial Report present complementary 

perspectives on the government’s financial position and condition.

x The Budget is the government’s primary financial planning and control tool. It accounts for past government 

receipts and spending, and includes the President’s proposed receipts and spending plan. Receipts are cash 

received by the U.S. government and spending is measured as outlays, or payments made by the government 

to the public. Receipts greater than outlays creates a budget surplus; and outlays greater than receipts creates a 

budget deficit.

x The Financial Report includes the government’s costs and revenues, assets and liabilities, and other important 

financial information. It compares the government’s revenues (amounts earned, but not necessarily collected), 

with costs (amounts incurred, but not necessarily paid) to derive net operating cost.

Chart 1 compares the government’s budget deficit (receipts vs. outlays) and net operating cost (revenues vs. 

costs) for fiscal years 2014 - 2018. During 

fiscal year 2018:

x A $127.1 billion increase in outlays was 

offset in part by a $13.8 billion increase in 

receipts to increase the budget deficit by 

$113.3 billion (about 17.0 percent) to 

$779.0 billion. 

x Net operating cost remained largely 

unchanged during fiscal year 2018 at $1.2 

trillion, increasing by $5.4 billion or 0.5 

percent. This is due mostly to a $10.1 

billion or 0.2 percent increase in net cost 

which slightly more than offset a $9.7 

billion or 0.3 percent increase in tax and 

other revenues.

x The $380.0 billion difference between the 

budget deficit and net operating cost is primarily due to accrued costs (incurred but not necessarily paid) 

related to increases in estimated federal employee and veteran benefits liabilities and certain other liabilities 

that are included in net operating cost, but not the budget deficit.
3 Executive Summary to the 2018 Financial Report of U.S. Government 

Costs and Revenues 

The government’s “bottom line” net operating cost remained largely unchanged at $1.2 trillion during fiscal year 

2018, increasing by $5.4 billion (0.5 percent). It is calculated

as follows:

x Starting with total gross costs of $4.8 trillion, the 

government subtracts earned program revenues (e.g., 

Medicare premiums, national park entry fees, and postal 

service fees) and adjusts the balance for gains or losses 

from changes in actuarial assumptions used to estimate 

future federal employee and veterans benefits payments 

to derive its net cost before taxes and other revenues of 

$4.5 trillion (see Chart 2), an increase of $10.1 billion 

(0.2 percent) from fiscal year 2017. This net increase is 

the combined effect of many offsetting increases and 

decreases across the government. For example:

o Entities administering federal employee and veterans 

benefits programs, including the Office of Personnel Management (OPM), Department of Veterans Affairs 

(VA), and Department of Defense (DOD) employ a complex series of assumptions, including but not limited 

to interest rates, beneficiary eligibility, life expectancy, and medical cost levels, to make actuarial projections 

of their long-term benefits liabilities. Changes in these assumptions can result in either losses (net cost 

increases) or gains (net cost decreases). Across the government, these net losses from changes in assumptions

amounted to $125.2 billion in fiscal year 2018, a loss decrease (and a corresponding net cost decrease) of 

$231.3 billion compared to fiscal year 2017.

o The Department of Energy’s (DOE) net cost increased by $99.6 billion, predominantly due changes in 

estimated environmental remediation costs.

o Department of Health and Human Services (HHS) and Social Security Administration (SSA) net costs 

increased $56.4 billion and $39.5 billion, respectively, largely due to increases in benefit expenses from the 

social insurance programs administered by those entities (e.g., Medicare, Social Security). 

o At DOD, a $33.0 billion net cost increase includes a $39.2 billion decrease in earned revenues across the 

Department, as well as increases in the costs of procurement, personnel, and research and development. 

These increases were partially offset by a decrease in losses from changes in assumptions referenced 

above and a decrease in costs of military operations, readiness, and support.

o Interest costs related to the federal debt held by the public increased by $61.0 billion due largely to an increase 

in the debt and average interest rates, as well as inflation adjustments on certain Treasury securities. Interest 

costs increased by 20.6 percent in 2018 from 2017 and by 37.4 percent over the past five years.

x The government deducts tax and other revenues from net cost (with some adjustments) to derive its fiscal year 

2018 “bottom line” net operating cost of $1.2 trillion.

o From Chart 3, total government tax and other 

revenues grew by $9.7 billion (0.3 percent) to about 

$3.4 trillion for fiscal year 2018.

o Together, individual income tax and tax 

withholdings, and corporate taxes accounted for 

about 88.7 percent of total tax and other revenues in 

fiscal year 2018. Other revenues include Federal 

Reserve earnings, excise taxes, and customs duties.
 Executive Summary to the 2018 Financial Report of the U.S. Government 4

Assets and Liabilities

Chart 4 summarizes the assets and liabilities that the government reports on its Balance Sheet. As of 

September 30, 2018:

x Total assets ($3.8 trillion) consist mostly 

of $1.4 trillion in net loans receivable 

(primarily student loans) and $1.1 trillion 

in net property, plant, and equipment).

o Other significant government 

resources not reported on the Balance 

Sheet include stewardship assets, 

natural resources, and the 

government’s power to tax and set 

monetary policy.

x Total liabilities ($25.4 trillion) consist 

mostly of: (1) $15.8 trillion in federal debt 

securities held by the public and accrued 

interest and (2) $8.0 trillion in federal 

employee and veteran benefits payable.

o The “public” consists of individuals, corporations, state and local governments, Federal Reserve Banks, 

foreign governments, and other entities outside the federal government.

x The government also reports about $5.8 trillion of intragovernmental debt outstanding, which arises when one 

part of the government borrows from another.

o For example, government funds (e.g., Social Security and Medicare trust funds) typically must invest 

excess annual receipts, including interest earnings, in Treasury-issued federal debt securities. Although 

not reflected in Chart 4, these securities are included in the calculation of federal debt subject to the debt 

limit.

x Debt held by the public plus intragovernmental debt equals gross federal debt, which, with some adjustments, 

is subject to a statutory debt ceiling (“debt limit”).

o At the end of fiscal year 2018, debt subject to the statutory limit was $21.5 trillion. Increasing or 

suspending the debt limit does not increase spending or authorize new spending; rather, it permits the 

government to continue to honor pre-existing commitments.

o Legislation most recently suspended the debt limit from February 9, 2018 through March 1, 2019. 

Effective March 2, 2019, the statutory debt limit was set at $22.0 trillion, and on March 4, 2019, the 

Secretary of the Treasury notified the Congress that the statutory debt limit would be reached on or after 

that day. When delays in raising the debt limit occur, Treasury implements “extraordinary measures” on 

a temporary basis, to enable the government to protect the full faith and credit of the United States by 

continuing to pay its bills. Treasury began taking these extraordinary measures on March 4, 2019.

Key Economic Trends

An examination of key macroeconomic indicators is essential to the discussion of the government’s financial 

performance. During fiscal year 2018, economic growth and the pace of job creation each accelerated, and the 

unemployment rate declined to a 49-year low. These and other economic and financial developments are 

discussed in greater detail in the Financial Report.
5 Executive Summary to the 2018 Financial Report of U.S. Government 

An Unsustainable Fiscal Path 

An important purpose of this Financial Report is to help citizens understand current fiscal policy and the

importance and magnitude of policy reforms necessary to make it sustainable. A sustainable fiscal policy is one 

where the ratio of debt held by the public to GDP (the debt-to-GDP ratio) is stable or declining over the long 

term. GDP measures the size of the nation’s economy in terms of the total value of all final goods and services 

that are produced in a year. Considering financial results relative to GDP is a useful indicator of the economy’s 

capacity to sustain the government’s many programs.

The current fiscal path is unsustainable. To determine if current fiscal policy is sustainable, the projections 

discussed in the Financial Report assume current policy will continue indefinitely.1 The projections are therefore 

neither forecasts nor predictions. Nevertheless, policy changes must be enacted so that actual financial outcomes 

will be different than those projected.

Receipts, Spending, and the Debt 

Chart 5 shows historical and current policy projections for receipts, non-interest spending by major category, 

net interest, and total spending expressed 

as a percent of GDP.

x The primary deficit is the difference 

between non-interest spending and 

receipts. The primary deficit 

expressed as a ratio relative to GDP 

(the primary deficit-to-GDP ratio) is 

useful for gauging long-term fiscal 

sustainability.

x The primary deficit-to-GDP ratio 

spiked during 2009 through 2012 due 

to the financial crisis of 2008-09 and 

the ensuing severe recession, as well 

as increased spending and temporary 

tax reductions enacted to stimulate the 

economy and support recovery. As an 

economic recovery took hold, the 

primary deficit-to-GDP ratio fell, 

averaging 1.9 percent from 2013-2018. The ratio is projected to rise to 2.9 percent in 2019 and then shrink 

slightly through 2024 as the economy grows. After 2024, however, increased spending for Social Security and 

health programs2 due to the continued retirement of the baby boom generation and increases in health care 

costs is projected to result in increasing primary deficits that peak in 2039, when the primary deficit-to-GDP 

ratio reaches 4.1 percent. After 2039, the ratio gradually decreases as the aging of the population continues at 

a slower pace, and reaches 2.5 percent in 2093.

x These projections assume the individual income and estate and gift tax provisions of the TCJA are 

permanently extended and discretionary spending grows at the same rate as nominal GDP beyond 2019.

Congressional action is required to make these changes. GDP, interest, and other economic and demographic 

assumptions are the same as those that underlie the most recent Social Security and Medicare trustees’ report 

projections, adjusted for historical revisions that occur annually. See Note 23 for more information.

1Current policy in the projections is based on current law, but includes extension of certain policies that expire under current law but are routinely extended 

or otherwise expected to continue.

2 See the 2018 Trustees Report for Medicare (pp 4-5) and Social Security (pp 4-23) and the 2017 Medicaid Actuarial Report
 Executive Summary to the 2018 Financial Report of the U.S. Government 6

x The persistent long-term gap between projected receipts and total spending shown in Chart 5 occurs despite 

the projected effects of the Affordable Care Act (ACA)3 on long-term deficits.

o Enactment of the ACA in 2010 and the Medicare Access and CHIP Reauthorization Act (MACRA) in 

2015 established cost controls for Medicare hospital and physician payments whose long-term 

effectiveness is still to be demonstrated.

o There is uncertainty about the extent to which these projections can be achieved and whether the 

ACA’s provisions that reduce Medicare cost growth will be overridden by new legislation. 

Table 1 summarizes the status and projected trends of the government’s Social Security and Medicare Trust 

Funds.

The primary deficit projections in Chart 5, along with those for interest rates and GDP, determine the debtto-GDP ratio projections in Chart 6.

x The debt-to-GDP ratio was 78 percent 

at the end of fiscal year 2018, and 

under current policy is projected to 

exceed 100 percent by 2030, and 

reach 530 percent in 2093.

x The debt-to-GDP ratio rises 

continuously mainly because higher 

levels of debt lead to higher net 

interest expenditures, which lead to 

higher deficits and debt. The 

continuous rise of the debt-to-GDP 

ratio indicates that current fiscal 

policy is unsustainable.

x These debt-to-GDP projections are 

higher than the corresponding 

projections in both the fiscal year 

2017 and fiscal year 2016 Financial Reports.

3 The ACA refers to P.L. 111-148, as amended by P.L. 111-152. The ACA expands health insurance coverage, provides health insurance subsidies for lowincome individuals and families, includes many measures designed to reduce health care cost growth, and significantly reduces Medicare payment rates 

relative to the rates that would have occurred in the absence of the ACA. (See Note 22 and the Required Supplementary Information section of the Financial 

Report, and the 2018 Medicare Trustees Report for more information).
7 Executive Summary to the 2018 Financial Report of U.S. Government 

The Fiscal Gap and the Cost of Delaying Fiscal Policy Reform

x The 75-year fiscal gap is a measure of how much primary deficits must be reduced over the next 75 years in 

order to make fiscal policy sustainable. That estimated fiscal gap for 2018 is 4.1 percent of GDP (compared to 

2.0 percent for 2017). 

x This estimate implies that making fiscal policy sustainable over the next 75 years would require some 

combination of spending reductions and receipt increases that equals 4.1 percent of GDP on average over the 

next 75 years. The fiscal gap represents 21.9 percent of 75-year present value receipts and 18.6 percent of 75-

year present value non-interest spending.

x The timing of policy changes to make fiscal policy sustainable has important implications for the well-being 

of future generations as is shown in Table 2.

o Table 2 shows that, if action is delayed by 10 years, the estimated magnitude of primary surplus 

increases necessary to close the 75-year fiscal gap increases by nearly 20 percent from 4.1 percent of 

GDP on average over 75 years to 4.9 percent on average over 65 years); if action is delayed by 20 

years, the magnitude of reforms necessary increases by about 46 percent. 

o Future generations are harmed by a policy delay because the higher the primary surpluses are during 

their lifetimes, the greater is the difference between the taxes they pay and the programmatic 

spending from which they benefit.

Conclusion

x Projections in the Financial Report indicate that the government’s debt-to-GDP ratio is projected to rise over 

the 75-year projection period and beyond if current policy is kept in place. The projections in this Financial 

Report show that current policy is not sustainable.

x If changes in fiscal policy are not so abrupt as to slow economic growth and the sooner those policy changes 

are adopted, the smaller the changes to revenue and/or spending will be required to return the government to a 

sustainable fiscal path.

Find Out More

The 2018 Financial Report and other information about the nation’s finances are available at:

x U.S. Department of the Treasury, http://www.fiscal.treasury.gov/fsreports/rpt/finrep/fr/fr_index.htm;

x OMB’s Office of Federal Financial Management, https://www.whitehouse.gov/omb/management/office-federalfinancial-management/; and

x GAO, http://www.gao.gov/financial.html

The Government Accountability Office’s (GAO) audit report on the U.S. government’s consolidated financial 

statements can be found beginning on page 226 of the full Financial Report. GAO was unable to express an 

opinion (disclaimed) on these consolidated financial statements for the reasons discussed in the audit report.